1
Apr
2011
The Lowdown on Credit Scores
The old saying money makes the world go around is truer today than ever before, and loans for everything from a house to a car is the way most people get the house of their dreams, and the ride they want. However, credit scores will indicate to lenders just what type of car or house one can purchase. Keeping a good credit score is vital, and knowing how they work, and what they might require is important too.
The top credit reporting bureaus are Experian, Equifax, and Trans Union in the U.S. Anytime a loan is requested from anyone lenders will check to see what a credit score from one of the big three say. Typically credit scores from a credit history go from 300-900. Most people are in the mid range group, around 700, and the top half of the population is in the 800+. If a score of 550 or below is reported, then it is in the low range, and it is much harder to get a loan.
Most companies in the credit card industry set a standard cut off point for loans of credit. All companies are different though, and when applying for one, or getting an offer for a credit card, the loan amount is based on the credit score. Levels of credit are seen as a status symbol of the type of card that is offered, for example Platinum is the top, and Gold cards are a slightly lower credit card. It does not matter if it is a Platinum Visa, or a Gold Diners Card. Having a great credit score will allow high loan amounts on credit to be granted for personal or even for a company to use in their daily transactions.
It is all automated by computer, so any chance to push the loan limits up, is non-existent. There are no more friendly handshakes that will bargain or deal with anyone needing a loan. That is why it is so important to keep credit as near as perfect as possible. Credit scores determine a lot of factors when applying for a loan. It could mean that an outright rejection will happen, or it might mean that a large deposit or no deposit at all will be needed.
Interest rates are determined too on a credit score. Outrageous interest on a loan will be required if past payments on any debt is not paid out in a timely fashion. Some high-risk credit card expense can be as high as 26%. On the flip side if an average credit rating is reported by one of the three, then an average or loan end interest rate could be offered. Sometimes if a credit score is too bad it will be funded by another source besides the primary lending financial institution. The paper might have to visit several different companies before final approval is made.
Lenders at times might not go through all three credit-scoring companies. At times if one report satisfies their requirements for the loan they might only use it. If a loan for a mortgage is wanted, it is sure that the big three will be used for the loan. How they figure the loan amount is up to the individual lender, and it depends on company policy of the investors about how much, and to whom they want to lend the money too. Usually an average is figured from all of the scores on each, and a formula is applied to see if their own special guidelines are met. Again, this just all depends on the lending institutions rules and guidelines.
Remember to keep up to date with credit scores. They fluctuate from day to day, and if payments are kept up to date, then the credit score will allow for higher amounts to be borrowed and paid back. Sometimes there are mistakes that have not been removed from the credit reporting bureaus, and they need to be removed immediately. However, the companies that have loaned money are the ones that need to be contacted after looking over the credit scores. The credit reporting bureaus are not the one that can remove it, only the lending institutions. Make sure to always check out the credit scores at least two times per year for any personal or business accounts.
26
Nov
2010
4
Jun
2010
A LoveHate Relationship: How your credit score can open and
A LoveHate Relationship: How your credit score can open and slam doors for you
There are many ways to get ahead financially: attend seminars where you cut up your credit cards with hundreds of other people, participate in debt consolidation services that help you take out a home equity loan or refinance your home, or you can transfer debt on one credit card to another credit card with an introductory rate of 0% (which goes up to 12% six months down the road). The reason these methods dont work is because we dont concurrently cut our expenses while implementing these strategies. Even if were making more money, unless we cut expenses, we will continue to spend more money than we have and incur debt. Manage yourself and your money. Money is like food; we dont eat only when were hungry, and we certainly dont spend only when we need something.
Beware: Debt forgiveness can hurt you. The company that forgives your debt can issue a 1099C, which means the forgiven amount gets added to your taxed income.
When theres a will, theres another way:
Your credit score (also called your FICO or Beacon score) will affect the interest rate youre able to secure. Credit scores range from 500 to 850. Where are you on the scale?
Whats in a number?
500 and belowyour in serious trouble
650 to 680 you probably will have a difficult time getting credit, and if you do it will be at higher rates
700+–excellent score
How you got your credit score:
a)Payment history (35% of score). Make payments on time or early.
b)Amounts you owe (30% of score)
c)Credit history (15% of score). The longer you have credit, the higher your score can be.
d)New credit (10% of score). New credit cards.
e)Type of credit you have in use. Mortgages, Bloomingdales, etc.
There are three reporting services that can give you your score: Equifax.com, Experian.com and Transunion.com. At least once, do an experiment and order a report from all three. They probably will provide a complimentary report each year, per person. You will most likely find inconsistencies in the reports such as missing and incorrect information. Each time a credit report is run on you, your score is lowered by two or three points. You still want to shop around for a mortgage, but consider using a mortgage broker who runs one report to shop around the loan. If you go to five different banks, that can drop your score 15 points.
28
May
2010
7 Tips To Increase Your Credit Score
Having a high credit score can mean the difference of thousands of dollars of saved interest expense compared to others with a lower score. For example, if you improve credit score results from the credit bureaus, just a few points that increase your credit score can make huge difference in the interest rate you will pay for a home purchase. It pays to increase your credit score!
The most commonly used credit scores available to lenders are FICO scores, which is a scoring method created by Fair, Isaac & Co…FICO!
These scores are provided to lenders by the three major credit bureaus: Equifax, Experian and TransUnion. Before we get into some tips how to improve credit scores, it pays to review the major areas that determine your FICO score.
1. Payment history on credit and retail store cards, loans and mortgages.
2. Amount that you owe. Credit agencies look at how many accounts have balances and the proportion of that balance to the credit line.
3. How long is your credit history? The longer the better.
4. New credit accounts. Applying for a bunch of credit cards all at once can hurt your score.
5. Different credit types, such as mortgages, retail loans, credit cards and installment loans.
6. How many late payments do you have?
Now, with the playing field laid out, lets work to boost your credit score! Some methods that boost your credit score take time, months or years, and others areas to improve credit score can be made with a phone call right now! That said, here are the 7 tips to raise your credit score!
7 tips to improve credit scores
1. Pay your bills on time. Your payment history is a major factor (35% of your FICO score) in determining your credit score. If you pay your bills late, or had an account referred to collections, your credit score will take a major hit.
2. Sign up for online banking and make sure your regular recurring bills are paid automatically. This way you will not forget a payment that will wind up reducing your credit score.
3. Increase your credit limit. Another large factor is the amount of your debt in relation to your credit limit. If you have a card with a $10,000 credit limit and your balance is $9,000, this will not help to improve your score. To make the debt/credit limit ratio look better, you can try to call your credit card company and request an increase in your credit limit. Don’t use the extra credit though! That defeats the whole purpose and puts you further in debt!
4. Don’t apply for many cards at once. This will not improve your credit score because this is a characteristic of high credit risk groups.
5. Dont ever close an open credit card account. If you pay off a credit card down to a zero balance, leave it open. Remember that a positive factor for your credit score is how much available credit you have at your disposal when compared to your credit balance, in addition to the length of your credit history.
6. Apply for loans within a two-week period. Every time you request a loan and the lender pulls your credit report, it can hurt your score. It is part of the FICO formula that reasons “this person is trying to apply for credit and loans and possibly be trying to live way beyond their means!” If you keep the loan process within a two-week period, all of the credit report lookups are bundled together as one single request!
7. Check for errors on your credit report. Examine your credit report for errors and contact the credit reporting agencies to fix any errors on your credit report.
If you take action and follow these tips, you will be able to give your credit score and immediate boost and gradually increase it even more as time passes. The major keys are to pay your bills on time and reduce your debt amounts when compared to your credit limit. This has a twofold benefit of improving your credit score and reducing your debt.
Copyright 2005 FinancialTipsForYou.com
7
May
2010
5 Common Credit Score Myths
Your credit score is an integral part of your financial life. It is important that you understand what it’s all about. Lenders, landlords, insurers, utility companies and even employers look at your credit score. It is derived from what’s in your credit reports, and it ranges between 300 and 850.
Yet, according to a survey that was recently conducted, nearly half of all Americans don’t know how these scores are derived or even what factors are used to come up with them.
For example, if your credit score is 580 you are probably going to pay nearly three percentage points more in mortgage interest than someone who had a score of 720.
Or another way of looking at it, if you had a 150,000 30- year fixed-rate mortgage and your credit score was good enough to qualify for the best rate, your monthly payments would be about 890. This is according to Fair Isaac, the company that created the FICO score and who the rate is named afte (Fair Isaac COrporation). If your credit is poor, however, it is very likely that you would have to pay more than 1,200 a month for that same loan.
With so much depending on the credit score, its important to understand what it is all about and what are the things that affect it.
Unfortunately, people commonly have a lot of misinformation and misunderstandings about their credit score. Here are five of the most common credit score myths and along with it the true facts:
MYTH #1: The major bureaus use different formulas for calculating your credit score.
FACT: The three major credit bureaus – Equifax, TransUnion and Experian — give the score a different name. Equifax calls their score the “Beacon” credit score, Transunion calls it “Empirica” and Experian gives it the name “ExperianFair Isaac Risk Model.” They all use different names for the credit score, but they all use the same formula to come up with it.
The reason that the credit score you receive from each bureau is different is because the information in your file that they base the score on is different. For example,the records that one bureau is using may go back a longer period of time, or a previous lender may have shared its information with only one of the bureaus and not the other two.
Usually the scores are not too far from each other. Unless there is a big difference between what each bureau says is your credit score, many lenders will just use the one in the middle for the purpose of analyzing your application. So, for this reason alone it is a good idea to correct any errors that exist in each of the three major credit bureaus.
MYTH #2: Paying off your debts is all you need to do to immediately repair your credit score.
FACT: Your credit score is mostly determined by your past performance more than your current amount of debt. It will definitely be very helpful to pay off your credit cards and settle any outstanding loans, but if yours is a history of late or missed payments, it wont remove the damage overnight. It takes time to repair your credit score.
So definitely pay down your debts. But it is equally important to consistently get in the habit of paying your bills on time.
MYTH #3: Closing old accounts will boost my credit score.
FACT: This is a common misconception. It’s not closing accounts that affects your credit score, it’s opening them. Closing accounts can never help your credit score, and may actually hurt it. Yes, having too many open accounts does hurt your score. But once the accounts have been opened,the damage has already been done. Shutting the account doesnt repair it and it may actually make things worse.
The credit score is affected by the difference between the credit that is available and the credit that is being used. Shutting down accounts reduces the amount of total credit available and when compared with how much credit you can use your actual credit balances are made to seem larger. This hurts your credit score.
The credit score also looks at the length of your credit history. Shutting older accounts removes old history and can make your credit history look younger than it actually is. This also can hurt your score.
You generally shouldn’t close accounts unless a lender specifically asks you to do so as a condition for them giving you a loan. Instead,the best thing you can do is just pay down your existing credit card debt. That’s something that definitely would improve your credit score.
MYTH #4: Shopping around for a loan will hurt my credit score.
FACT: When a lender makes an inquiry about your credit, your score could drop up to five points. Some borrowers think that if they shop around by going to a number of different lenders that each time a lender does an inquiry it will generate another reduction in the credit score. This isnt true. For credit score purposes, multiple inquiries for a loan are treated as a single inquiry, as long as they all come within a 45 day period. So it is best to do your rate shopping within this 45 day window.
MYTH #5: Companies can fix my credit score for a fee.
FACT: If the credit bureaus have accurate information, theres nothing that can be done to quickly improve your score if in fact you have a history of not handling your debts well. The only way to have an effect on your credit score is to show that you can manage your debts in the future.
Also,if there are errors in your file, you can contact the bureau yourself. You dont need to pay someone else to do it. Each of the major credit bureaus has a website which clearly explains what you need to do to correct an error.
So, the best ways to improve your credit score are: pay down the debt,pay your bills on time, correct existing errors on your credit reports in each of the three bureaus and apply for credit infrequently.